Xiamen International Airport:H116earnings growth in single digits,lower than expected

H116 net profit attributable to shareholders up 7% YoY, missing expectations

    H1 revenue was Rmb740m (-1% YoY), operating profit was Rmb290m (+6% YoY) andnet profit attributable to shareholders was Rmb210m (+7% YoY); EPS came in atRmb0.72, missing our and consensus expectations. Q2 revenue fell 8.4% YoY and netprofit attributable to shareholders grew a meagre 2% YoY (Q1: +12.8%).

    Slowing earnings growth due to capacity constraints, depressed commerce

    We attribute the slowdown in earnings growth to the following: 1) Due to runwaycapacity constraints, H1 aircraft movement/passenger volume growth eased to2.1%/2.5%, lower than in previous years. Aeronautical revenue per passenger dropped0.6% YoY, causing growth in the core aeronautical operations to slow to 2%, trailingpassenger volume growth. 2) Retail sector sentiment trended down in H1. Against thisbackdrop, the company delivered a disappointing performance, with commercial rentalrevenue down 10.7% and gross margin down 4.3ppts YoY.

    Passenger volume to maintain single-digit growth in 2016E

    For the full year, we estimate that: 1) the company's peak-hour aircraft movementshave reached 32, very close to the upper limit of 34 set by the Civil AviationAdministration of China, and are unlikely to rise further, dragging growth in revenuefrom core aeronautical operations down to single digits; 2) slowing macroeconomicgrowth could continue to weigh on the commercial leasing business.

    Valuation: Maintain Neutral rating; Rmb23.5 price target

    Our DCF-based price target assumes WACC of 7.6%. We maintain our Neutral ratingand intend reviewing our earnings estimates following the interim results.